Bunge holds door open on sale of company

03.08.2017

Bunge, the grain trader that has been a takeover target for Swiss commodity group Glencore, kept the door open on a sale of the company after it reported a sharp drop in second-quarter profits and lowered earnings guidance.

Asked if a sale was still possible, Bunge chief executive Soren Schroder said he and the board took their responsibility to shareholders seriously and would “evaluate the best path” for the New York-listed company.

“There is no entrenchment,” he told analysts on a post results conference call.

Glencore approached Bunge in May about a possible “combination” with its agricultural arm. But Glencore’s interest drew a cool response from Bunge, which said it was focused on delivering its own strategy.

A combination of the two companies would create one of the world’s largest agricultural trading merchants, with leading positions in crops such as soyabeans and wheat, and operations spread around the world.

Some analysts believe another weak quarter of results could trigger a renewed approach from Glencore, which is led by billionaire Ivan Glasenberg and has made no secret of its desire to boost the size of its agricultural business.

Mr Schroder said on Wednesday that Bunge had a good idea of its intrinsic value and added that its shares — which are up more 7 per cent this year but have lagged behind the wider market — were undervalued relative to their potential.

He said Bunge was open to consolidation but favoured regional partnerships and that a $250m cost-cutting plan announced last month had been in train for some time and was not connected to Glencore’s approach.

“This is a major transformation within the company not only from cost perspective but how we operate the company. That is no way a response to Glencore or anyone else,” he said.

“Because the industry is undergoing such a competitive squeeze at the moment the faster we can move on this the better it is,” he added.

Large agricultural traders have struggled in recent years as bumper harvests and fierce competition have squeezed margins. As crop prices have declined farmers have hoarded grain, forcing traders to pay more, particularly in Brazil, a key supplier of corn and soybeans.

Those trends were evident in Bunge’s second-quarter results. The company reported adjusted earnings per share of $0.17 cents in the three months to June, against $0.79 cents in the same period a year ago. It blamed the decline on “weak global margins” and slower than expected farmer selling in South America.

Net income available to shareholders dropped to $72m, down from $109m, and Bunge slashed full-year earnings guidance for its key agribusiness. Most of Bunge’s revenue and profit come from this division, which buys wholesale grains and oilseeds and stores, ships and sells them around the world.

Before Bunge issued a surprise profit warning last month, it forecast the agribusiness would deliver earnings before interest and tax of $800m-$925m in 2017. It is now expected to show $550m-$650m. Shares in Bunge fell 0.7 per cent to $77.47.

“The equity market was expecting a very weak set of results given Bunge’s pre-announcement [profit warning], and probably won’t be that surprised by the reduction in full-year guidance,” said Morgan Stanley analyst Vincent Andrews.

In spite of the revised guidance, Mr Schroder struck an upbeat tone, saying he expected a much better second half of the year.

“Global trade remains strong, opportunities are emerging from recent weather concerns in North America and farmers in Brazil are proving willing sellers as prices have increased,” he said.

Mr Schroder said Bunge was still keen to reduce its exposure to sugar because there were “too many variables” that it could not control. But, as the business was profitable, he said Bunge wanted to make sure that its shareholders received fair value in any transaction.

“An IPO is something we are considering and we’ve done the early moves on preparing the company for that but we have a few other discussions . . . that we think could be better outcomes,” he said.



The Financial Times

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